Civil servants and the rest of the public sector have been spared a pay cut which would have saved taxpayers $1.76 billion. Instead, they have been given a second consecutive annual pay freeze.

Secretary for Civil Service Lam Woon-kwong said the Executive Council's decision had taken into account improved public sector efficiency. "Exco has also taken into consideration the fact that the civil service has over the past year done quite a lot of things to improve its productivity . . . including the gradual implementation of the civil service reform," Mr Lam said.

A pay trend survey suggested civil servants and employees of publicly funded bodies should have pay cut by between 0.41 and 1.97 per cent. The Government has reportedly considered putting off a pay cut until next year. Factors considered by Exco also included staff morale, cost of living, budgetary considerations, the economy and pay claims made by staff.

It is the third consecutive pay freeze for the 300 civil servants ranked D3 or above, earning at least $127,000 a month.

Despite the freeze, taxpayers are footing the bill for pay rises of $710 million this year for some 90,000 civil servants. They were granted higher pay after satisfactory performance assessments.

Major staff unions said they accepted the freeze. The Chinese Civil Servants' Association, which had demanded a 1.61 per cent rise, said it would review the situation to see if further action would be taken.